Fences make good neighbors. They keep the peace and promote harmony. They clearly delineate the boundary and give each side a clear indication of their property rights. No, this isn’t an article about real property boundaries (important, but for another day). Instead, this is an article about planning your estate. Similar to a fence, a clearly articulated estate plan is designed to keep the peace, promote harmony and give family members, creditors and other interested parties a clear statement of their respective rights, obligations and duties. And, the well-drafted estate plan will also save considerable costs, delays, aggravation and uncertainty.
While most people have heard the basic estate planning terms such as “Last Will and Testament,” “Probate,” “Power of Attorney” and “Trust,” often, there is considerable misinformation and confusion about some of these terms. I will attempt to simplify these terms and concepts.
Last Will and Testament. This document applies only upon death, and has three main functions: (1) To state who receives your assets – your “Beneficiaries”; (2) To state who takes over for you to wind up your affairs – your “Personal Representative”; and (3) To state who you prefer to take care of any minor children and their assets, if applicable – a “Guardian and/or Conservator.”
Probate. The Court proceeding your estate goes through when you die whereby your wishes will be carried out if you have a valid Last Will and Testament. If you do not make a Last Will, our state legislature decides each of the three items listed above that your Last Will would otherwise control (our laws on “intestate succession” would apply). A typical probate will take six months to two years, will cost anywhere from $2,000-5,000, and is a public proceeding – even if there are no disputes or other irregularities. The good news is that, with proper planning, these costs, delays and the publicity can be avoided.
Financial Power of Attorney. Valid only during the life of the principal who names an “agent” or “attorney-in-fact” to do things the principal could do from a financial standpoint. This includes paying the principal’s bills, banking, managing accounts and other assets, and dealing with any third parties that the agent could otherwise deal with on her own. The agent is required to act for and on behalf of the principal and has certain legal duties that must be followed in carrying out actions on behalf of the creator of the POA.
Health Care Power of Attorney. Same concept as a financial POA but gives the agent the authority to make health care decisions for the principal and otherwise deal with medical professionals if he is unable to participate in his own medical care decisions (for example, due to Alzheimer’s, a stroke, a coma, etc.). Typically, a Living Will would also be executed with the Health Care POA to deal specifically with “end of life” decisions (if, for example, the principal is in a “persistent vegetative state” and on life support).
Trust. The overwhelming majority of trusts used for estate planning are revocable living trusts that allow the creator to continue to have full and complete control over his or her assets while alive and healthy. However, upon the death or incapacity of the creator, there is no need to go to court for probate or other proceedings as a new trustee would be required to carry out the creator’s wishes without court involvement. A trust also covers any of life’s “what-ifs” by planning for any possible contingencies (such as minor or incapacitated beneficiaries). Again, a trust is designed to allow the creator to dictate precisely what happens upon his or her death or incapacity without court involvement, costs or delays.
There is simply no substitute for a clear plan that you have the control to put into place now – while you are alive and able – that dictates precisely what you want to happen when you die or if you become incapacitated during life. Without such a plan, your affairs will be subject to dispute, ambiguity, and needless costs and delays. Go ahead, put up that fence, plan your estate now – for your peace of mind and that of your family and loved ones! FBN
By Stephen A. Thompson
Stephen A. Thompson is a lifelong resident of Flagstaff and is a partner with AWD, where he has practiced for 19 years. He is available for a complimentary initial estate planning consultation. Appointments scheduled before the end of 2014 will receive a $100 credit toward any estate planning services if you mention this FBN article. 928-774-1478; firstname.lastname@example.org.